Supposedly, when Alan Greenspan wanted to get the real pulse of the economy, he’d phone up a shipping company like UPS or FedEx, and they’d tell him what was really up.
We have no idea if that really happened.
That being said, a quick glance at UPS’ earnings today really does help you get a feel for what’s happening in the global economy in all sorts of ways.
The first thing you need to know is that the number was a “beat”, helping to push the stock (and the overall market) higher. It only ended up 0.9%, after being up earlier, but it was obviously a positive day. It’s very close to its 52-week high, which is really impressive given how high oil is, and the presumption that a company that drives trucks like UPS does would be kneecapped by higher oil.
As Pragmatic Capitalist points out, volume growth actually decline a little in the US, while growing overseas, confirming the emerging “dual-track” look to the global economy. On the other hand, pricing power in the US was way better, and revenue surged despite the weak volume.
And beyond that, margins surged.
Here’s what management said on the conference call, about how it was managing to improve margins in this environment: “The leverage is really coming from 2 components. Number 1 is the top line leverage, where as I said, one of our top priorities is making sure that we get pricing back to the levels that compensate us for the value we’ve created. And so the relatively firm stance on pricing and extracting the value that is there is a big driver of that. And at the same time, we are seeing the benefits of the deep investments we’ve made in operational technology. And we’ll show a lot more of that at our Investor conference in September to give you guys a little more understanding of the multiple areas that we’re streamlining to network. So — and all of that is without significant benefits of growth, which will help us both on scale densities and also the moderating the wage increases.”
Got that? The company is doing a great job at improving efficiency (investments in operational technology) which means it’s spending less on workers, and not being forced to pay workers more. In fact, worker hours in the quarter actually fell 2%!
Finally, when asked about the company’s big concern, management cited (duh) higher oil prices, though it also noted the remarkable resiliency of a global economy that’s managed to withstand the Arab Spring and the Japanese Earthquake, not to mention the fresh Eurozone breakup fears.
So there you have it: Great earnings, a mediocre outlook in the US, a stronger situation in Asia, good times for technology companies, bad times for workers, and fears about oil.
Is there really anything else?
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